New Law to Help Louisville Deal with Blighted Property
April 21, 2016
Senate Bill 230, sponsored by a bipartisan group of Louisville-area lawmakers, is meant to make it less costly for the city to use its power of eminent domain to take title to abandoned houses and lots.
The bill also allows the city to designate certain neighborhoods – most likely in west, central or southwest Louisville – as areas where delinquent tax bills are not offered for sale to third-party investors.
That means fewer outside interests will have claims on the equity in abandoned properties, which could make it easier to clear their title and make way for a new owner.
It’s the fifth state law change that Mayor Greg Fischer’s administration has secured over the years to deal with the city’s 8,200 abandoned structures and lots, spokesman Chris Poynter said.
“We’re slowly but surely making progress on this significant problem for our city,” Poynter said.
The bill, which only applies to Louisville Metro, cleared its final legislative hurdle April 1.
Sen. Morgan McGarvey, the bill’s lead sponsor, said it was a “big victory” to get legislation dealing with arcane property law issues through General Assembly.
He said lawmakers had to be assured that the new powers would not be hastily deployed against homeowners who might have missed a tax bill but haven’t abandoned their property.
“We are no way, shape or form expanding the power of eminent domain; we had to get a lot of people comfortable with that idea,” said McGarvey, a Democrat who represents the Highlands area.
“These are the worst of the worst properties — nobody wants them. The owner doesn’t want them. The bank doesn’t want them. The city doesn’t want them,” he added. “All of the safeguards remain in place to ensure this is only used on those properties no one wants.”
While abandoned houses rack up fines and can even be demolished by the city, Kentucky’s strong property rights make it costly and time-consuming to remove an absentee owner.
Properties often end up in perpetual disrepair because their title cannot easily be transferred to an owner who will correct the problems.
Fischer’s administration has begun filing foreclosure cases on a few hundred abandoned houses and lots.
But only once in the last decade has the city used a separate process – called spot condemnation – to strip an abandoned property from its owner through eminent domain.
SB 230 is aimed at making the spot condemnation process less costly. The process requires the city to pay the “market value” of the property to its owner and to any lienholders – like mortgage banks or tax lien holders.
But under the bill, the city commission approving the condemnation will be able to deduct from the property’s value the cost of fixing broken windows and other code violations or the cost of demolishing the house.
Jeana Dunlap, director of Metro government’s Office of Vacant and Public Property Administration, said spot condemnation still requires a judge’s approval and is not faster or cheaper than filing a foreclosure.
But the process ensures that a Metro government entity will end up taking title to the condemned property, whereas anyone can bid on properties that come up at foreclosure auctions, she said.
“When we are working on a neighborhood-level revitalization effort, we need more guarantees,” she said. “This terminates in a guaranteed opportunity for Metro to take title.”
Asked how many spot condemnations the city might undertake and how they will be funded, Dunlap said, “That is something we are in discussions about.”
The other change in the bill allows the city to designate certain properties or Census blocks in which to prohibit the sale of tax liens.
When absentee owners don’t pay their property taxes, companies like American Tax Funding and Tax Ease Lien Services can pay the bill on their behalf and file a lien against the property. They’re entitled to get their money back with interest, including from any proceeds of the sale of the home.
Vacant homes often accumulate tax liens, adding third-parties with claims to the property.
SB 230 only applies to future years; it does not remove the many years of tax liens that problem properties have already racked up.
Louisville – with its merged city/county status — is the only municipality in the state that lacks discretion on whether to sell tax liens, McGarvey said.
Louisville Republican Sens. Julie Raque Adams and Dan Seum and Democrat Perry Clark co-sponsored the bill. Rep. Jerry Miller, an eastern Jefferson County Republican, and Shively Democrat Joni Jenkins helped it get through the House, McGarvey said.
“That shows how this is a real Louisville issue,” he said. “You are talking about both ends of the (political) spectrum there.”
SB 229, a related bill sponsored by McGarvey, Adams and Sen. Denise Harper Angel, never got off the ground in the Senate. It would have expanded the power of the city’s land bank authority, which receives unwanted properties.